Buoyed by acquisitions; upgrade to Add
■ On the back of its two recent accretive-acquisitions as well as evident sponsor commitment, we are able to visualise EREIT’s growth trajectory more clearly now.
■ We raise our FY18F-19F DPU by 2.9-3.0% and upgrade the stock from Hold to Add, with a higher DDM-based TP of S$0.63. We project total returns of 20% in FY18F.
■ EREIT has completed its second sizable acquisition in two months. It acquired 80% of 7000 Ang Mo Kio for S$240m or 6.5% initial NPI yield.
■ Post equity fund raising, the manager expects gearing to come down to 33.2%.
■ We turn constructive on EREIT in view of its i) relative valuations, ii) effective portfolio reconstitution and sponsor support, and iii) inorganic growth from acquisitions.
REITs – Singapore
Hospitality To Shine In 2018
We expect hotel RevPAR to turn around and rise 3-5% p.a. over the next three years, driven by a pick-up in room rates as occupancy inches towards 90% amid tight supply pipeline from 2H18. Demand is expected to remain strong, supported by a cyclical recovery in business traveller numbers and Chinese outbound travel. Prefer Singapore-centric hospitality stocks with CDREIT as our top pick. Maintain OVERWEIGHT on the sector.
Phillip Macro Update
5 key points for December FOMC Meeting
MACRO | U.S. | MONETARY POLICIES
The U.S. Federal Open Market Committee (FOMC) just concluded their two-day meeting on the 13th of December. The meeting discussed the Fed’s monetary policy stance and economic projection.
Five key points to note 1. Interest Rates – U.S. Federal Reserve (Fed) has increased its benchmark interest rate by 25bps to a range of 1.25% - 1.50%. This will be the third time the Central Bank has raised its rate for this year. According to the dot plot, the Fed median expectation of its rate in 2018 is in the range of 2% - 2.25%. This implies three more hikes in 2018.
Frasers Commercial Trust: A new frontier
Frasers Commercial Trust (FCOT) announced that it has entered into a 50:50 JV with its sponsor, Frasers Centrepoint Limited, to acquire Farnborough Business Park (FBP), which comprises 14 commercial buildings in the UK. The purchase consideration of the asset comes in at GBP 174.6m, which is at a slight discount to the property valuation of GBP 175.05m. FBP has a long WALE of 8.3 years with a high occupancy rate of 98.1%. Based on pro forma NPI as at 30 Sep 17, we estimate the S$ NPI yield of FBP to be ~6.4%, which is higher than that of FCOT’s existing portfolio yield of ~5.5%. The acquisition is expected to be accretive, with pro forma DPU expected to increase by 1.6% from 9.82 S-cents as at 30 Sep 17 to 9.97 S-cents, assuming financing based on a combination of debt and equity. What is notable is that this comes on the back of an expanded investment mandate for FCOT with the inclusion of commercial real estate assets in Europe, including business parks. Further to an analyst briefing, we place our HOLD rating and S$1.42 fair value estimate under review.
Yoma Strategic Holdings (YOMA SP) : BUY
‘Tis the season to be jolly
Myanmar Government held a press conference today to announce the long-awaited issuance of the Condominium Rules
We believe this could come as a surprise to the market as this has been delayed since last year
Bodes well for Yoma especially as it expects to launch the Peninsular Residences project soon.
Maintain BUY; proxy to economic turnaround in Myanmar
Check out our compilation of Target Prices